Free Motion for Leave to File - District Court of Federal Claims - federal

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IN THE UNITED STATES DISTRICT COURT FOR THE DIST~CT OF COLUMBIA

SCOTT&WHITEHEATLHPLAN Plaintiff Civil No. 01 CV1824 (JGP) UNITED STATES OFFICE OF PERSONNEL MANAGEMENT, Defendant.

DECLARATION OF NANCY H.

KICHAK

1, NancyH. Kichak, declare as follows, based on personal knowledge and information available to meas a result of myoffcial duties:

1.

I serve as Director of the Office of the Actuaries, Retirement and Insurance Service, for

the United States Office of Personnel Management (OPM).I have occupied this position since 1987. Prior to occupyingthis position, I ,*,'as the Supervisory Actuary for Insurance. My office is located at 1900 E Street, N.W., WashingtonD.C. 2. OPM the Federal agency charged with the administration of the Federal Employees is

tlealth Benefits Act, 5 U.S.C. § 8901 el seq. ("FEHBA"). mycapacity as Director of the In Office of Actuaries, I oversee the rate negotiations with all carriers in the Federal Employees Health Benefits Program CFEHBP"). Approximately 180 carriers FEHBP. presently participate in the

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3.

OPM successfully negotiated rates with carriers participating has

in the FEHBP since the

inception of the program in 1959. Thus, OPM specific experience, knowledge, and expertise has in the setting of rates under the FEHBP in rate negotiations. and 4. OPM armually ncgoliatcs benefits and premiumswith each cartier participating in the

FEHBP.Premiums may be negotiated on the basis of experience rating or communityrating. Rate proposals for a given calendar year are generally submitted in Mayof the prior year, and rate negotiations typically take place in June, July, and Augustso that rates are finalized prior to the open season for the given year. 5. Community rated health maintenance organizations are at risk whenthey determine their

rates, if they charge too much,they are at risk of losing en.ro/lees in the competitive open season process. If they charge too little, they maynot earn enough premiumincome to meet the covered

health services of the group. It is the carrier's responsibility to project the appropriate ~nount to charge for covered services in advance of the year in which the services will be provided. 6. OPM does not analyze the appropriateness of the underlying rate. Instead, it reviews the

proposed rate to establish that the amountsthe plan delcrmines it will charge are distributed appropriately to the FEHBP the carrier's and other covered, non-Federal groups of a similar size.

OPM does not question what judgment the carrier has applied in its projections. 7. OPM looks at data directly related to its responsibility under the FEHB to evaluate a law

proposed rate in order to ensure that the FEHB rates accurately rerqect the cost of benefits provided, and requires cost or pricing data sufficient to verify rates. 8. When OPM negotiates rates with a community rated carrier, its objective is to receive a

rate that is derived in a mannerconsistent with the rate that carrier charges its other, non-Federal groups of a similar size.

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9.

OPM recognizes that the actual community rates, and methodologiesfor determining

them,for the followingcontract year maynot be available at the time of the carrier's rate submission. 10. FEHBP negotiation is premised on an estimate or projection ofwhat a carrier's rate community rates will be for the ensuing contract ycar. 11. Generally, bcgirmingin April of the contract year, after community are known, rate

community rated carriers and OPM engagein a process to reconcile the community rates currently in force with the actual rates the carriers shouldhavecharged. Theactual rates arc derived after reviewingthe methodology discounts used to derive the rates chargedto other and similarly sized subscriber groups. 12. In years when contract is renewed, it is determined the if that the rates currently in force

were higher than the reconciled rates, the carrier pays OPM difference, throughlower rates in the subsequent years or by cash payment; it is deter'mined if that the rates currently in force were lowerthan the reconciled rates, OPM the carrier the difference throughhigher rates in pays subsequentyears or by cash payment from the contiogencyrese~,es to the extent that funds are available. 13. OPM's Office of the Actuaries requires data pertaining to SSSGs order to perform a in rate reconciliation. Thedata is requestedwhen becomes it available, and it is anal~,~zed after rate negotiations for the current year have been concludedand before the next year~s premium is finalized. OPM sends apackage ofreconciliation instructions to the carriers each year that indicates whatdata is requested in support of adjustmentsto the carrier's community rate.

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14.

When carriers propose rates to OPM actuaries, and provide data as to actual rates and the Program's actuaries use "that data in the developmentand

methodologies for rcconciliation,

reconciliation of a rate. At the time of reconciliation, the Office of the Actuaries limits its review to the daia the carrier makesavailable for reconciliation. The Office of the Actuaries does not obtain all detailed records that maybe maintained at the carrier's place of business. The Office of the Actuaries does not have the resources, and it is not that Office's operational thnction, to look behind these data or to verify that they are correct and appropriate to use for purposes of negotiation and reconciliation. 15. OPM relies on tbe audit feature of the FEHBP provide an incentive for the carriers to accurately represent the data that drives their rates in the first instance. 16. Amountshave been questioned with respect [o Scott & White's charges to the FEHBP in acquiescence and payment of funds due to to

past years, which have been resolved by thc carrier's the FEHBP, by negotiation between the parties. or 17.

In Final Audit Report No. UF-00-97-001, OPM'sOIG made the following findings that

Scott & White agreed to. With respect to contract year: 1991- Scott & White incorrectly calculated the FEHBP's mental health loading and premiumtax credit; 1992 - the plan miscalculated the FEHBP mental health loading and inadvertently omitted a transplant loading from the FEHBP'srates, and gave an SSSGa more favorable premiumtax percentage for 1992;

1993 - the FEHBP paid the same copay as one of the SSSGsbut did not receive a reduction in its rates, paid an overcharge for mental health benefits, and did not receive the appropriate state premiumtax percentage; 1994 - the plan overcharged lhe FEHBP its mental health benefits for and failed to give the FEHBP appropriale state premiumtax percentage; 1995 - the plan the overcharged the FEHBP its mental health benefits. With respect to 1995 and 1996, the OlG for

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madethe following findings that Scott & White disagreed ~vith: failure to give the FEHBP the same reduction in renewal rates given to SSSGsthat renewed in September, and providing the FEHBP credit loading instead of the 4 percent reduction for the office visit copaymentthat an a SSSGreceived. Tlae parties resolved the I995 and 1996 questioned amounts through negotiation. Ultimately, the plan returned funds to the FEHBP to the questioned charges. due 18. OPM recognizes that the eft'ectiveness of its Office of the Actuaries to develop a rate, and

to reconcile that rate, dependsupon the carrier's maintenanceof records, the accessibility of those records, and the cooperation of the carder in the conduct of an audit. 19. During the performance of a contract, OPM t.vpically maintains a relationship with the

carrier that is conducive to a productive negotiation. OPM also maintains oversight ofthe ongoing contract and in the event of an improper charge to the FEHBP,OPM uses the reserves earmarkedfor the carder to prospectively correct prior improper rates. 20. When contract is not renewed OPM's a experience has been that its access to carrier

rccords and data is constrained in a variety of ways. For example, if the carrier is purchased or merged by another carder, whether or not the new entity takes on the FEHBP line of business, identification of and access to the former carrier's records can become logistical challenge. ~ OPM recognizes that its records retention requirements are typically greater than are requirements for a carrier's other lines of business. OnceIhe contract is not renewed, the carrier finds itself with a greater recordkeepingrequirement a contract that is endedthai] for its for ongoingbusiness, the latter of whichrepresents the carrier's priorities and focus of interest. 21. In the event that the carrier's rates currently in force are higher than the reconciled rates, owing ftmds to the FEHBP reconciliation, on and thus would have a

the carrier mayfind itself

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fir~ancial disincentive to provide access to data, parlicularly in view of its inability to look to fulure reserves to offset the improperprior rate. 22. OPM found that it was unable to obtain adequate data to reconcile rates for a variety of

plans, ha the case of Coordinated Health Care, which merged with HMO Minnesota, of documentation was insufficient to enable the Office of the Actuaries to reconcile the 1988 rates for Coordinated Health Care. As a result, OPM decided to reinstate the proposed rates and assumed no payment was due to OPM the plan. or 23. In the case of MaxicarePlans, in fourteen cases, the actual 1990 rates were significantly

different from the rates that were originally proposed and the documentation provided to support these rate changes was not sufficient. Maxicare had filed for bankruptcy and ils rate negotiation

contact employee left the company. OPM'sOffice of the Actuaries recommended that any amounts due Maxicare as a result of the 1989 reconciliation, as well as amounts due from

Maxicare lo OPM,be held in abeyance until an audit of Maxicare was completed. 24. During the period prior to revising its communityrating regulation, OPM'sexperience

proved that carrier data was simply more difficult to obtain, for a variety of reasons, once the contract was not renewed, and communityrates were correspondingly more difficult and verify once the carrier had decided not to renew its contract. 25. As a result, OPM determined that it would not require a rate reconciliation in the year the to reconcile

contract is not renewed. This regulation places the burden of properly projecting estimated community rates equally on OPM the cartier. and It relieves the carrier of the requirement to

continue to maintain data sufficient for rate reconciliation once the contract is terminated, and it relieves OPM from the administrative burden of identifying and accessing the appropriate data at a time whenthe carrier no longer participates in the FEHBP.

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26. The parties equally share the risk of inaccurate ratcs negotiated in the yca.r ofnonrenewal. 27. During the initial rate negotiation, carders and OPM estimate the following year's rates

in good faith and on the best data available at the time of the negotiation. This rate will serve as the subscription rate for the following year, upon which employee premiumis based, and the parties strive to project as accurate a rate as possible. During years whenthe contract is renewed, the incentive exists for the parties to use accurate and appropriate data because underestimating the rate could, uponreconciliation, raise the carrier's rate for the following year, adversely affecling the carrier's ability Io attract enrollees. 28. Scott & White never expressed disagreement with OPM'sinterpretation section 3.2(b)(6) meant. of what contract

I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge and belief.

May ~ 2002

Na~ncy I¢..ichak H. Director, Office of the Actuaries Retirement and Insurance Service